Intro to Budgeting
With a vision and a plan you can achieve greatness 🌟 Download the Budget Table to start your journey.
Intro to Budgeting
In this edition of The Personal Finance Project Newsletter:
🧐 What is Budgeting?
📊 The PFP Budget Table.
⏰ Wake Up! Getting started TODAY.
What is Budgeting?
Budgeting is the practice of anticipating upcoming financial commitments and forecasting future cashflows in order to make educated financial decisions. The tool you use to do this is the Budget Table.
Another financial tool!? Holy smokes! 💨
I PROMISE 🤝 that with just the financial tracker and the budget table, you are strongly equipped to responsibly manage your finances. Here’s why.
The summary that financial tracking provides us about past cashflows (see Newsletter #6 - Intro to Financial Tracking) is very informative… but to truly unleash the power of this information we must use it to anticipate and forecast future cashflows, 🔮 with budgeting! Why? Well…
To understand how the financial aspects of present decisions will impact you just a bit further into the future.
To foresee periods in the future where money is tight, and where it is abundant.
To establish a plan or “path” toward responsibility by deciding on how much you should/shouldn’t spend.
Budgeting and Financial Tracking, Together 👯♀️
Use financial tracking to learn from the past. You can apply these teachings to the future via budgeting, which allows you to make smart financial decisions in the present.
With that, I introduce to you the PFP Budget Table.
This is the same file as the downloadable financial tracker. See the “Budget Table” Infographic and Tab. 🗂
The PFP Budget Table
There are 2 underlying components of the table that should be understood:
Beginning and Ending Balance
Ending Balance Before/After Adjustment
Beginning and Ending Balance ⚖️
The balance of your bank account at the end of one month is equal to the beginning balance of the next.
The table is built around the idea that there is an ideal account balance 👌 of your chequing account, which will be reflected in the beginning (and ending) balance of each period. Why? Simplicity, consistency, and comfort.
On the budget table, you will notice two brightly coloured cells (orange and yellow).
Input Data into the Orange and Yellow Cells
So brightly coloured (and labeled) you cant miss them! ⭐️
Orange Cell - Ideal Account Balance
The orange cell is where you will input your ideal account balance.
To determine this value, ask yourself “how much money do I like to have in my account at any given time?”.
"Millions, of course!" 💰
... alright lets be realistic too.
Yellow Cell - Beginning Balance of First Month
The yellow cell is where you will put the beginning account balance of the period in which your budget begins.
Since you may not be building the budget on the first day of the month, you may not know this exact value… that's okay! Just make your most accurate estimation. 👍
The overall idea is that you are starting with the most accurate info in the first month (yellow cell), then using a consistent ideal account balance for each month prior (orange cell).
Ending Balance Before/After Adjustment
At the bottom of the table, there are 3️⃣ rows:
Ending balance
Adjustment
Ending balance after adjustment
The ending balance of any given period is simply your anticipated account balance after adding ➕ all cash inflows and subtracting ➖ all cash outflows.
We said that the ending balance in one period is the same as the beginning balance of the next… But what if the ending balance doesn’t match the ideal account balance?
This is where adjustment comes in.
annnnnnnd, CUT! 🎬
I'll be completely honest, originally I had planned to explain the concept of reevaluating your budget using adjustments. After consideration, I decided that it's best that we save this for the next newsletter. ⏭
The adjustment and ending balance after adjustment rows are an important part of the Budget Table, and thus they are still included in the downloadable file.
For now... ⏳
...consider the values shown in the adjustment row as the difference between your ending balance and your ideal account balance. The adjustment value tells you which periods will have extra cash (positive adjustment value) and what periods have insufficient cash (negative adjustment value).
Getting Started
Beyond theory, the actual practice of budgeting is quite simple! 🍰
5 steps you can follow to start NOW:
Download the template.
If you haven’t started financial tracking, see the Intro to Financial Tracking Newsletter (#6) first and revisit Budgeting next month.
Locate and read through the “Budget Steps + Template” tab (on the bar spanning across the bottom of Excel).
Review financial info from past trackers and input values into the orange and yellow cells.
Pick the closest beginning of the month (ex. November 1st) and start estimating your income, savings, and expenses for future periods!
… not sure if you’re doing this correctly? ✅ Use the following example as guidance.
Indicators of Success
Checklist: 📋
1) You have input values into the orange and yellow cells.
2) You have forecasted cashflows for all of your income, savings, and expenses.
3) The "adjustment" row displays a value for each month.
Its as easy as that!
Three reminders before we finish:
Budgeting is never perfect ✋ (which makes it easier, not harder). If you err on the side of caution (by slightly overestimating your expenses) you will be better prepared for unforeseen costs.
Budgeting = Planning. Building a budget allows you to understand ahead of time what you may/may not be able to afford. Think of your budget as a plan that will guide your spending decisions.
Budgeting and Tracking are better together. 🤲 Learning from past tracking helps future forecasting which guides present decisions.
Anotha' One
Ah, the beginning of another series! This is the first of many pieces on budgeting.
⏰ What's to come in future newsletters:
Reevaluating Budgets using Adjustments.
Personal examples of Tracking and Budgeting.
Excel Guidance and tips for success.
✅ What we've covered today:
A basic understanding of budgeting.
Rundown of the PFP Budget Table.
Turning concept into practice - starting today!